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A17
WEDNESDAY,
DECEMBER 16,
2015
• Twitter: @GuardianTT • Web: guardian.co.tt
The Guyana government Monday said
it would be paying out a year-end bonus
to public service employees, whose
salary is less than half a million dollars
(One Guyana dollar=US$0.008 cents) a
month.
In addition, the Ministry of Finance
announced that a one-off, tax-free
payment of GUY$50,000 "will be made
to all active public sector workers earning
less than five hundred thousand dollars
($500,000) monthly".
It said that the payment will be
effected in December and that an
estimated 30,700 public sector workers
including nurses, teachers, members of
the Disciplined Services and semi-
autonomous agencies will benefit as a
result.
A brief government statement
announcing the "bonus" for the public
servants, noted that in the seven months
since the new administration came to
office, "public servants earning over
GUY$50,000 received between a 15 and
six per cent salary increase, with those
on the lower end of the scale receiving
the higher percentage increase.
"Additionally, the minimum basic salary
was increased to GUY$50,000 from
GUY$42,703 and those who had still
been receiving the older minimum wage
of GUY$39,540 were also brought in
line," the statement said.
RAPHAEL JOHN-LALL
Economist Dr Ronald
Ramkissoon said when
T&T governments are
pegging the budget
against the price of oil
and natural gas they
should use an average
rather than using the
lowest or highest prices.
"Prices have been
falling and to say where
they will stop, I think we
are getting to the bottom.
It is a bit surprising at the
levels to which prices have
fallen of both oil and gas.
We know the commodi-
ties market are very
unstable.
We are never sure of
how low they will fall or
how high they can go.
However, the lower they
go, when they do rise it is
likely to be higher than we
think. That is why policy
makers must find an aver-
age in making decisions.
So you do not base pol-
icy on the lowest price or
on the highest but you try
to find an average price to
work with," he told the
Guardian yesterday.
Yesterday, natural gas
prices in the US main-
tained their downward
trajectory due to weak
demand for the heating
because of unseasonably
warm temperatures in the
United States.
Prices fell sharply by 9
cents, or by 4.5 per cent
to US$1.81 per mmbtu
(British Thermal Units in
million).
Finance Minister Colm
Imbert had pegged the
T&T budget on a mix of
natural gas prices of
US$2.75 per mmbtu
(Henry Hub) and US$8 per
mmbtu (Indonesia).
The news was not bet-
ter as West Texas Inter-
mediate (WTI) closed at
US$36.74 a barrel, well
below the budget peg of
US$45.
Ramkissoon said T&T
is in a difficult situation
and that the country
should have addressed the
problem at least one year
ago.
"We need to address
the fact that we are in a
very different environ-
ment and we need to
address it at the company
level, at the individual
level, at the country level
and do what is required
to ensure that in the short
term we ride out difficult
times," he said.
He said the Govern-
ment must use this period
of low energy prices to
devise a strategy for
growth for the future so
that when prices do go
back up the country will
have other sources of rev-
enue and the economy
will be more diversified.
He said the economy
has been structured in a
particular way for decades
and it will take time before
certain values are changed
and people modify their
habits.
Referring to disclosures
made by the Central Bank
Governor, Ramkissoon
said while the country was
surprised by the type of
companies that have
absorbed the foreign
exchange, economists who
have studied the T&T
economy were not sur-
prised that retail-type
companies use a large
chunk of the foreign
exchange.
"It is no news that the
economy is skewed in
particular way in terms of
consumption. It is no
news that retail and dis-
tribution is very large and
vibrant and has been that
way for decades.
It is no news where
most of the foreign
exchange goes. That is no
news for economists. We
knew that 90 per cent of
our foreign exchange came
from one sector.
We know that the rest
of the economy is net for-
eign exchange users.
We know that there is
an emphasis on consump-
tion rather than invest-
ment and that is T&T s
culture," he said.
He said the challenge is
to change that balance and
move to an economy
where the country pro-
duces more of what it
consumes.
Bonus for Guyana's public servants
Fed betting it will avoid central
banks' errors of the past
LONDON---The Federal
Reserve is poised to raise
interest rates today for the
first time in 9½ years. It may
not take so long to know
whether its decision was cor-
rect.
History is filled with cases,
from the Fed in the 1930s to
the European Central Bank in
2011, when central banks raised
rates prematurely, sometimes
with dire consequences. Raising
rates or otherwise tightening
credit too soon can slow bor-
rowing, jolt confidence and
choke growth.
When the global financial
system started buckling in
2007, central banks cut rates
to fight the worst economic
catastrophe since the 1930s.
As the crisis escalated in late
2008, many rates were slashed
to record lows. The Federal
Reserve cut its benchmark rate
to near zero.
Mindful of the risks of higher
rates and of the US economy s
lingering weaknesses, some
economists have suggested that
the Fed could wait a bit longer
before raising rates, especially
with inflation still low amid
slumping oil and commodity
prices. In a survey of top aca-
demic economists, the Univer-
sity of Chicago found that
while 48 per cent favoured a
rate hike, 36 per cent felt the
Fed should hold off.
Andrew Levin of Dartmouth
College is among those who
think the Fed is acting too
soon. "The economy is not that
close to normal yet," Levin says.
"Inflation has been persistently
falling short of the Fed s tar-
get."
Levin notes, too, that while
the unemployment rate is a
low 5 per cent, millions without
jobs have given up looking for
one. Levin says employers
would have to add 200,000
jobs a month for at least anoth-
er year to restore the job mar-
ket s health.
For any central bank, the
hardest task is to continually
straddle a delicate balance:
Keeping rates too low for too
long can inflate asset bubbles
as investors seek returns that
are higher---but riskier---than
returns on government debt.
Low rates can also weaken the
ability of central banks to com-
bat a new crisis or recession.
But equally, central bankers
must take care not to increase
rates too soon. Since the global
financial crisis, several central
banks, from Israel s to New
Zealand s, have raised rates only
to have to reverse course soon
after.
Federal Reserves chair Janet
Yellen summed it up in a
speech on December 2. Yellen
said delaying a first increase
too long might later compel
the Fed to raise rates faster than
it would like.
"An abrupt tightening would
risk disrupting financial mar-
kets and perhaps even inad-
vertently push the economy
into recession," she said.
"Holding the federal funds rate
at its current level for too long
could also encourage excessive
risk-taking and thus under-
mine financial stability."
Here are some examples
when history suggests central
banks should have waited
longer to tighten credit.
The Fed's 1937 error
In 1936-37, during the Great
Depression era, the Fed sought
to normalize its policies by
increasing the amount of
money banks had to hold as
reserves. Many blame that
decision, along with a tougher
budgetary stance from the US
government, for helping pro-
long the Depression. The econ-
omy fell back into a brutal
recession in which around 2.5
million Americans lost jobs.
By 1938, President Franklin
Roosevelt reverted back to the
expansionist policies associated
with the New Deal that he had
been implementing since 1933.
And the Fed rescinded the
increased reserve requirement.
The economy then enjoyed a
spectacular recovery, helped
by wartime spending.
In a 2012 speech, Charles
Evans, head of the Federal
Reserve Bank of Chicago,
warned of a "natural tendency"
for policymakers to want to
undo super-low rates.
"Such errors happened in
1937 when the Fed prematurely
withdrew accommodation,"
Evans noted.
Japan's lost decades
Ben Bernanke, the Fed chair-
man during the 2008 crisis,
was a keen student of Japan s
experience after the bursting
of a stock and housing bubble
in 1990. A quarter-century
later, Japan still confronts the
repercussions of that shock,
notably deflation, or falling
prices.
In August 2000, barely a
year after the Bank of Japan
adopted a zero-rate policy, it
raised rates for the first time
in a decade. It justified that
move by noting that confidence
was returning and prices were
rising. But a few months later,
the central bank was compelled
to cut rates again as Japan s
economy slid back into reces-
sion and prices fell again.
Japan s experience reflects
the risks of raising rates when
inflation is negligible, as it now
is in the United States.
Europe's dubious hikes
The European Central Bank,
which sets rates for the 19
countries that use the euro, is
enacting a huge stimulus pro-
gram intended to ease borrow-
ing rates. The ECB s pro-
gramme marks a sharp policy
reversal. In 2011, the ECB raised
rates twice, boosting its bench-
mark rate to 1.50 per cent. The
bank, then led by Jean-Claude
Trichet, said it needed to
reduce inflation pressures in
the eurozone.
By year s end, the ECB, now
led by Mario Draghi, changed
course as the rate hikes and
export-sapping appreciation
of the euro pushed the econ-
omy back into recession. The
region was also fighting a debt
crisis that threatened the euro
itself.
Critics regard the 2011 rate
increases as a major policy
mistake. (AP)
T&T skewed
toward
consumption
Economist Dr Ronald
Ramkissoon